Treasury To Buy Back Debt

The Treasury Department on Thursday will buy back a part of the national debt for the first time in 70 years, officials announced Tuesday.

The initial repurchase operation will cover only $1 billion and will be limited to 30-year bonds issued between 1985 and 1990. Treasury officials said they kept the initial operation small in an effort to test the market response.

Treasury Secretary Lawrence Summers had announced in January that the government hopes to buy back up to $30 billion of the $5.7 trillion national debt this year. The administration's budget projects that the entire $3.7 trillion of the national debt that is held by the public could be wiped out by 2013 under current projections for budget surpluses. The Treasury had said in January that no debt had been bought by the government for at least a century. But further research found a limited buyback as recently as 1930.

The 1920s were the last decade in which the government ran a string of annual surpluses. In 1998, the government enjoyed its first budget surplus in 29 years and the 1999 surplus marked the first time since Dwight Eisenhower was president in the 1950s that the government had been able to post back-to-back annual surpluses.

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While those surpluses are projected to run for years to come, economists caution that any forecast that far into the future is likely to be wrong.

The Clinton Administration, which counts elimination of soaring budget deficits as one of its greatest achievements, has argued that the most responsible thing to do with the excess cash is to reduce the national debt, putting the government on a sounder footing to deal with rising costs when the baby boom generation begins retiring in a few years.

Treasury officials said anyone holding a 30-year bond issued between 1985 and 1990 can seek to participate in the initial buyback but must do so through brokers, known as primary dealers, who handle the initial sales of Treasury securities.

The operation will be a reverse auction in which the government will accept the best offers that are made to the New York Federal Reserve, which will conduct the operation for the Treasury. The offers must be submitted by 11 a.m. EST Thursday and the winning offers will be announced around midday, Treasury officials said.